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Southern California Sunbelt Developers, Inc. v. Grammer

Court of Appeals of Texas, Third District, Austin

December 31, 2019

Southern California Sunbelt Developers, Inc.; and Dan Baer, Appellants
v.
Donald B. Grammer; Colchester Management Services, LLC; Blanco Realty Advisors Limited Partnership, L.L.P.; Brenda J. Grammer; GGDG, Ltd.; Daralyn E. Grammer-Allen; Big A Technology Limited; Apple Management Services, LLC; Gregory M. Grammer; Cherry Blossom Limited Partnership; Lemon Leaf Limited Partnership; Colchester Financial Limited Partnership; Jaguar-Piaget Limited Partnership; and Dinvest, Ltd., Appellees

          FROM THE 33RD DISTRICT COURT OF BLANCO COUNTY NO. CV08260, THE HONORABLE EVAN C. STUBBS, JUDGE PRESIDING

          Before Chief Justice Rose, Justices Triana and Smith

          MEMORANDUM OPINION

          Gisela D. Triana, Justice.

         Southern California Sunbelt Developers, Inc. (Sunbelt) and Dan Baer challenge the district court's order granting a Rule 91a motion for failure to state a claim and the court's subsequent judgment awarding attorney's fees under Rule 91a to Appellees. See Tex. R. Civ. P. 91a.1 (authorizing party to seek dismissal of cause of action on ground that it has no basis in law or fact), .7 (addressing award of attorney's fees and costs to prevailing party).[1] Appellees are four family members (Donald B. Grammer, Brenda J. Grammer, Daralynn E. Grammer-Allen, and Gregory M. Grammer) (collectively, the Grammers) and ten Grammer entities (Colchester Management Services, LLC; Blanco Realty Advisors Limited Partnership, L.L.P.; GGDG, Ltd.; Big A Technology Limited; Apple Management Services, LLC; Cherry Blossom Limited Partnership; Lemon Leaf Limited Partnership; Colchester Financial Limited Partnership; Jaguar-Piaget Limited Partnership; and Dinvest, Ltd.).

         In four issues, Appellants contend that the district court erred by: (1) granting the Rule 91a motion to dismiss their causes of action; (2) looking beyond the pleadings and considering evidence in derogation of Rule 91a.6; (3) refusing to reconsider the dismissal order; and (4) awarding costs and attorney's fees that were excessive and not supported by legally sufficient evidence. We will reverse the dismissal order and the judgment for costs and attorney's fees and remand this cause to the district court.

         BACKGROUND

         The factual background of this appeal is complex because of the long history of litigation between the parties. In the underlying Texas suit, filed on April 26, 2017, Appellants and IBT International, Inc. sued Appellees to enforce certain cost awards: (1) a 2011 judgment against Donald Grammer[2] in favor of IBT for $24, 747.19 issued by a United States bankruptcy court in California; and (2) a 2014 order against two Nevada limited partnerships that Donald Grammer formed, Banyan Limited Partnership and Orange Blossom Limited Partnership, [3] in favor of Sunbelt for $40, 749.24 and in favor of Baer for $42, 091.48 issued by a California trial court. The underlying suit sought to enforce the foreign-court cost awards and alleged that the Grammers evaded payment of those awards through a conspiracy to fraudulently transfer and hide assets in multiple alter ego entities. Appellants also requested a declaration that two general partners, Donald B. Grammer and Apple Management Services, were liable for the debts of Banyan and Orange Blossom. Appellees filed a general denial that did not plead any affirmative defenses and then filed a counterclaim. A few weeks later, Appellees filed a Rule 91a motion to dismiss for failure to state a claim.[4]

         Material facts in amended petition

         Appellants filed their First Amended Petition one week before the hearing on the Rule 91a motion. Because allegations in the live pleading are essential to this appeal, we consider the amended petition in some detail.[5] The amended petition identified Apple Management Services, LLC as general partner for the Banyan and Orange Blossom limited partnerships. This pleading further alleged that both limited partnerships filed for bankruptcy:[6]

• [Appellants] hold cost awards arising out of the judgment rendered in the California litigation styled Case No. 764271; Van Dan Limited, et al. v. Dan W. Baer, et al.; Superior Court of the State of California, County of Orange-Central Justice Center (the "Van Dan Litigation"). Subsequent to the rendering of the judgment, [Appellants] filed their claims for costs. On November 13, 2014, the Court awarded costs to Sunbelt in the amount of $40, 749.00 and Baer in the amount of $42, 091.00, plus interest. These orders for costs were rendered against multiple parties including Banyan Limited Partnership and Orange Blossom Limited Partnership, jointly and severally. Although Banyan Limited Partnership and Orange Blossom Limited Partnership have filed for bankruptcy, Apple [Management Services, LLC], as the general partner of these limited partnerships, is jointly and severally liable for these foreign judgment debts. [Emphasis added.]
• Don Grammer and his multimillion-dollar businesses went into bankruptcy in the early 1990s. Since that event, Don Grammer has claimed poverty, despite the fact that he earns almost a half a million dollars every year and is upon information and belief worth well over $10 million. Nonetheless, the Grammer Family continues to own numerous entities worth millions of dollars (many jointly owned by Don Grammer) over which Don Grammer exercises control and management, and as the Grammer Family Certified Public Accountant has previously testified, the Grammer Family members use these entities as their personal checkbooks. Most money and/or interests held in the names of the various Grammer Family members has been owned and controlled by Don Grammer.
• Demand for payment of the debts set out above was made, but the Defendants failed to pay the sums due and owing. Given the past dealings Plaintiffs have had with Don Grammer, he and his family have attempted to insulate themselves from third-party creditors in improper ways. Plaintiffs upon information and belief assert that Don Grammer, and in conspiracy with the other Defendants, or alternatively some of them, used the [ten] Defendant Entities improperly in a process to conceal property and/or interests, hinder, delay or defraud creditors, such as Plaintiffs
Until in or about January of 2011, Don Grammer was the managing member of and the controlling individual for most of the Defendant Entities. Subsequently, the controlling individual allegedly became Gregory M. Grammer. [Emphasis added.] However, Plaintiffs assert that Don Grammer really kept control of the Defendant Entities for his benefit and to benefit other Grammer family members as he directed. In further related wrongful activity, Don Grammer and/or other Grammer Family members have improperly transferred many of their ownership and property interests in or to the Defendant Entities to others for inadequate consideration and/or with actual intent to hinder, delay, or defraud creditors, including Plaintiffs. [Emphasis added.]
• Further, upon information and belief, Don Grammer used his own monies, or alternatively controlled funds that were his, to acquire certain real and personal property and maintain it in the name of the other Defendants. Don Grammer and/or the other Grammer Family members used the Defendant Entities as their own and made various transfers whereby such entities acquired or divested certain property interests, including real property, during the past few years, while keeping personally insulated from ownership of same, all for personal benefit and that of the Grammer Family members. Don·Grammer and the other Grammer Family members, individually, and in concert with one another, used Defendant Entities as their alter ego and/or as alter egos of others in part or in whole, to defraud creditors, including Plaintiffs, in Blanco County, Texas, and/or with actual intent to hinder, delay, or defraud creditors, including Plaintiffs.
• Further, upon information and belief, Don Grammer, in concert with Brenda J. Grammer, Daralyn E. Grammer-Allen, and Gregory M. Grammer, operate out of numerous intertwined entities. Plaintiffs maintain this was done by the Grammer Family to improperly insulate Don Grammer and/or the other Grammer Family members from creditors, especially judgment creditors such as Plaintiffs, and to hide money including in real property holdings.
• Plaintiffs make claim against Defendants in alter ego, fraud, fraudulent transfer, and conspiracy, and involving all property, including any real property, held in various Defendants names. Such real property was either purchased or improved by monies that were fraudulently concealed from creditors, such as Plaintiffs, and creditors in similar situation.

         Causes of action and grounds for relief in amended petition

         Based on the "facts, statements and allegations" above, Appellants pled these "Causes of Action and Grounds for Relief": (1) foreign-judgment enforcement; (2) fraud/fraudulent transfer; (3) alter ego, traditional veil piercing, or reverse piercing; (4) discovery rule; (5) continuing-tort doctrine; (6) general-partner liability; (7) conspiracy; (8) aiding and abetting; and (9) declaratory judgment.[7] Their foreign-judgment enforcement and fraud/fraudulent-transfer causes of action are pled in some detail, including these excerpts:

Foreign Judgment Enforcement. Additionally, and as more specifically described above, cost awards arising out of the judgment entered in the above referenced Van Dan Litigation were rendered in favor of Appellants against multiple parties including limited partnerships, Banyan Limited Partnership and Orange Blossom Limited Partnership. Apple was the general partner of these limited partnerships at all relevant times. As the general partner, it is jointly and severally liable for this judgment debt for costs and Plaintiffs are entitled to enforce and recover this debt against Apple in this action. Further, all Defendants are jointly and severally liable for these cost awards on the grounds set forth in this petition.
Fraud/Fraudulent Transfer. Don Grammer and/or other Grammer Family members transferred monies, interests, real property and/or, alternatively, other benefits through Defendants, and/or in or to the Defendant Entities, and all the other Defendants, with the intent to hinder, delay and defraud Plaintiffs as creditors or without receiving equivalent value in exchange for the transfer or obligation and Don Grammer was engaged in transactions or business for which his remaining assets were unreasonably small relatively, and to prevent Plaintiffs from recovering the amount justly due them for the following reasons among others: (a) Don Grammer and/or other Grammer Family members maintained possession and control of real property or personal property after transfer to and among Defendants, in total or alternatively in part; (b) Don Grammer and the other Grammer Family members concealed assets; (c) Transfers to or of Defendants were made for inadequate consideration; (d) Transfers to or of Defendants were concealed; (e) Transfers to or of Defendants were made to insiders; (f) Transfers were of substantially all Don Grammer's and/or other Grammer Family members' nonexempt assets; (g) Transfers occurred shortly before or after substantial debts were incurred; and (h) Transfers were made with actual intent to hinder, delay, or defraud Plaintiffs.
Don Grammer, and/or the other Defendants from which transfers have passed or originated, did not receive a reasonably equivalent value for the real property or, alternatively, personal property interests, transferred and Don Grammer, and/or the other Defendants, were insolvent, or made to appear that way, either at the time or as a result of the transfer and/or was engaged or about to be engaged in a business or transaction for which remaining assets were unreasonably small and/or intended to incur debts beyond an ability to pay as they became due. At the time of the transfer, Don Grammer, and/or the other Defendants did not have sufficient nonexempt property, or were capable at any time to be made that way, in addition to the real property and/or, alternatively, other interests transferred, to satisfy his debts and was generally not paying debts as they became due. One such transaction was an August 2014 transfer by Don Grammer and G. Grammer partnership interest in Orange Blossom Limited Partnership.
On November 26, 2013, Judge N. Keith Williams, in litigation that included all parties named herein, excepting IBT, entered a court order that found under the Texas Declaratory Judgment Act that Don Grammer was mutually liable for the debt of Orange Blossom Limited Partnership to Sunbelt. On or about July 5, 2013, Don Grammer withdrew as general partner of Orange Blossom Limited Partnership, and in concert with his son, Gregory M. Grammer, put in his place as general partner, Apple, which company has had no assets and no ongoing business for at least since 2006. [Emphasis added.]
. . . .
Further, and additionally, the value of the fraudulent transfers [by] Don Grammer, as assisted and aided by the Grammer Family members, is shown in the federal income tax filings made with the Internal Revenue Service. The categories shown in such returns, and related financial documents prepared by Defendants' accountants, show as "distributions" the amount of value each Grammer Family member improperly obtained each year from each of the Defendant Entities, and such values are a measure of the fraud perpetuated on Plaintiffs, as to each of the Defendants.

         Appellants requested relief under the Texas Uniform Fraudulent Transfer Act (TUFTA), and alleged that the Grammer entities' corporate form or forms should be disregarded because the Grammers used the entities improperly, e.g., as a sham to perpetrate a fraud and to evade existing legal obligations. See Tex. Bus. & Com. Code §§ 24.001-.013 (Texas Uniform Fraudulent Transfer Act). Appellants alleged that "the discovery rule applies to any of the causes of action Defendants contend are barred by the statute of limitations." See id. § 24.010(a)(1) (discussing discovery rule under TUFTA). They further alleged that under the continuing tort doctrine, "the applicable statute(s) of limitations have not begun to run" due to "the repetitive wrongful acts and scheme of Defendants used to wrongfully avoid paying the obligation of the claims made the subject of this lawsuit, since 2006."

         Bankruptcy issue

         At a hearing on the motion to dismiss held on July 28, 2017, Appellees noted that the two Nevada limited partnerships-Banyan and Orange Blossom-were in bankruptcy court.[8] Further, Appellees contended that: (1) the enforcement claims had not been reduced to judgment in California or domesticated in Texas; (2) Sunbelt's $40, 729.20 cost award "fit within the release language" of a settlement agreement between the parties in a prior suit in Gillespie County; and (3) some of the causes of action in Appellants' pleading were subject to a two-year statute of limitations.

         The district court found the bankruptcy issue persuasive. The court stated its inclination to grant the motion to dismiss and requested additional briefing addressing whether Appellants could bring claims on assets that were under the control of a bankruptcy trustee:

But my question and the reason why I would grant the motion [to dismiss] from what I've heard is based on the idea that the $40, 749 and the $42, 091 were against these entities that are now in bankruptcy and if anyone is going to go after the general partner it would have to be the bankruptcy trustee because the bankruptcy trustee is the proper entity to have that claim I think.

         The parties agreed to waive the deadline for the court's ruling on the motion to dismiss and provided the requested additional briefing. See Tex. R. Civ. P. 91a.3(c) (requiring trial court to grant or deny motion to dismiss within 45 days after filing of motion). The district court subsequently granted Appellees' motion to dismiss in an order signed September 6, 2017, explaining the bankruptcy concern:

The only claims that remained, at the time of hearing Defendants' Rule 91a Motion to Dismiss, and thus the only claims for this Court to consider, involve a $40, 749 cost award to Southern California Sunbelt Developers, Inc. and a $42, 091 cost award to Dan Baer, both from a November 13, 2014, order of the Superior Court of the State of California, County of Orange in Case No. 764271, and charged against Banyan Limited Partnership and Orange Blossom Limited Partnership. . . . Banyan and Orange Blossom are Nevada Limited Partnerships that are not parties to this litigation and are both involved in pending Bankruptcy proceedings in California, as known by the Plaintiffs at the time of filing this action. The remaining claims in this litigation all flow directly from the Plaintiffs' attempts to collect these amounts from the General Partners of Banyan and Orange Blossom.
Under Nevada law, the debtor Limited Partnerships are empowered to compel their General Partner[s] to pay the debts of the debtor partnerships. See Nevada Revised Statutes 87A.365, 87A.530. Applying Bankruptcy Code Section 541(a), this power became property of the respective bankruptcy estates upon the filing of debtors' bankruptcy cases. Because the claims against any General Partner[s] are property of the bankruptcy estates, the trustee is given full authority over those claims. To allow a single creditor to prosecute its collection action for its own benefit would interfere with the debtor Limited Partnerships' right under Nevada law to pursue the same action for the benefit of all creditors, consistent with the fundamental purpose of bankruptcy law, as Nevada law provides that, "If a limited partnership's assets are insufficient to satisfy all of its obligations . . ., with respect to each unsatisfied obligation incurred . . ., each person that was a General Partner . . . SHALL contribute to the limited partnership for the purpose of enabling the limited partnership to satisfy the obligation. N.R.S. 87A.530 (3.)(a) (emphasis added). Thus, Nevada law empowers the debtor Limited Partnerships the right to compel contributions from its partners, and allowing the plaintiffs in this action to proceed would necessarily impair the debtors' exercise of its right to compel their General Partner[s] to pay their debts, interfering with property of the estate, and allowing the plaintiffs to avoid the fundamental bankruptcy principle of preserving property of the estate to ensure a ratable distribution to creditors. Bankruptcy vests the right to prosecute such claims in the trustee, who is given complete authority over them, for the benefit of all creditors, and to protect the interests of all creditors by treating like-situated claimants equally.
As such, and considering the only claims at issue in this motion flow directly from the debts of Banyan and Orange Blossom, Nevada Limited Partnerships known to the Plaintiffs to be in Bankruptcy, and with such claims being under the full authority of the respective Bankruptcy Trustee(s), the Defendants' Rule 91a Motion to Dismiss is hereby GRANTED.

         Thus, the district court's order on the Rule 91a motion addressed only whether there was a legal-not factual-basis for the causes of action; i.e., whether Appellants were entitled to the relief they sought on their claims as pled.

         Motion to reconsider

         Appellants filed a motion to reconsider, notifying the district court that the bankruptcy proceedings as to Banyan and Orange Blossom had been dismissed and closed. The district court heard and denied the motion on September 24, 2018, concluding that its order on the motion to dismiss was based on the information it had when it ruled in 2017.

         At the hearing on the motion to reconsider, Appellees presented testimony for their attorney's fees as prevailing parties on their Rule 91a motion. The court signed a judgment awarding Appellees $136, 016.60 in attorney's fees, plus conditional appellate attorney's fees. As to the conditional appellate attorney's fees, the order recited:

The Court further awarded to Defendants attorney fees in the amount of $25, 000 in the event of an unsuccessful appeal to the Third Court of Appeals and $30, 000 in the event of an unsuccessful appeal to the Texas Supreme Court.

         Motion for permissive appeal

         Appellants then filed a motion for permissive appeal, contending that the parties disagreed on a "controlling issue of law," i.e., whether the bankruptcy trustee owned the claims sought to be enforced in the lawsuit. The district court heard the motion on November 9, 2018, and denied it.

         Baer's amended motion for summary judgment

         Baer subsequently filed a motion for summary judgment and an amended motion as to Appellees' counterclaim. The district court granted Baer's amended motion for summary judgment February 28, 2019, disposing of all remaining claims and parties. The summary- judgment order was not appealed. This appeal challenges only the district court's ...


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